Recession risks offset China reopening optimism

Oil falls to a 2022 low

Oil is steadying after three days of declines and after finding support at $71.75, its lowest level in 2022. While China relaxing Covid restrictions is bullish for oil, U.S. oil inventory data showed a large build in petroleum products which overshadowed the draw in crude oil stockpiles. The data sent oil sharply lower to $71.75, a level that was last seen in December 2021. Crude oil inventories dropped by 5.187 million barrels, much larger than the 3.305 million barrels forecast. However, oil distillate stockpiles rose by 6.159 million barrels, well ahead of the 2.208 million barrels forecast. Oil prices remain under pressure as recession fears grow, which hurts the oil demand outlook.

Where might the oil price head to?

Oil has been trending steeply lower since November. The price appears to be in a falling wedge pattern. This can indicate a bullish reversal. Buyers could look for a breakout to the upside, at 82.85, to extend a move higher towards the 100 sma at 86.45. However, given that the price is down at 72.70, this seems a good deal higher. The RSI continues to support further downside, so sellers could look for a break below 71.75, the 2022 low, to extend declines to 70.00, the round number.

Broadcom Q4 earnings preview

Semiconductor maker Broadcom is due to release Q4 results. Wall Street is expecting revenue of $8.9 billion, up 20% from the same period a year earlier, and EPS is forecast to come in at $10.27, a 31.5% increase from the year-ago figure. The earnings come after Broadcom announced earlier in the year that it had agreed on a deal to buy cloud computing company VMWare, which is still awaiting approval from the competition regulators and is central to the firm’s strategy to reduce its reliance on semiconductor revenue. Further diversification makes sense for the firm, which already produces iPhone components and industrial equipment in addition to its data centre business and software units. The share price trades down -22% so far this year and is up 9% over the past month.

USD/CAD rises despite BoC rate hike

The BoC raised interest rates by 50 basis points, taking the overnight rate to 4.25%. While this was broadly expected, some participants expected a 25 basis point hike. The central bank noted that economic growth remained strong, the labour market tight, and inflation still too high. However, the central bank’s statement was more dovish than previously and said that they would consider further rate rises, rather than previously when the statement read that the policy rate needed to rise further. USD/CAD finished the day flat, as the loonie was dragged down by weaker oil prices. Today the pair is rising again ahead of US jobless claims data in an otherwise quiet economic calendar.

Support could be seen at 1.3570 (50 sma) and 1.35 (October low).

Resistance could be seen at 1.37 (week’s high) and 1.38 (November high).

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